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NYSE Study Proposes Wider Trading Halts

June 12, 1990

NEW YORK (AP) _ A New York Stock Exchange report released today proposed more widespread use of trading halts to curb stock-price volatility and recommended tighter regulatory control over financial markets to raise investor confidence.

The report capped a six-month study into the reasons for unwieldy markets, which have dogged the securities industry since the market collapse of October 1987 and have been partly blamed for a declining interest in stock ownership by individual investors.

But the NYSE’s conclusions didn’t significantly differ than other studies into the causes of wild price swings. They also found nothing inherently wrong with ″program trading,″ the computerized strategy of instantly buying or selling large quantities of stocks, which some critics have blamed for exaggerating movements in prices and frightening investors off.

″We found that the markets are essentially stable and sound, and that they are not ‘tilted’ against the individual investor,″ said General Motors Corp. Chairman Roger B. Smith, who headed the 18-member blue-ribbon panel on market volatility and investor confidence.

″There is, however, ample room for improvement, particularly in increasing public understanding of markets and how they have changed in recent years,″ he said.

Smith and fellow panelists spoke at a news conference at NYSE headquarters, where the long-awaited study was released. The market’s failure to react to its conclusions suggested that people in the securities industry found nothing threatening about them.

″I don’t think that’s a primary concern right now,″ said Philip Rettew, a senior market analyst for Merrill Lynch & Co., the nation’s biggest securities company. ″The market cares more about the economic numbers.″

Among the NYSE proposals was a ″four-tier circuit breaker″ that would halt trading for an hour when the Dow Jones industrial average moves up or down 100 points from the previous day’s close; 90 minutes when it moves 200 points; and two hours when it moves at least 300 points.

The proposed halts are for longer periods than previous, temporary circuit breakers enacted by the NYSE to control potential panic in the market.

The panel was formed after the 190-point plunge by the Dow industrials last Oct. 13, which began with word that a takeover offer for the parent of United Airlines had collapsed. Some experts have said that single event, combined with speculative selling and program trading, destabilized the market.

The NYSE study concluded that ″market volatility and program trading are not the primary concern of individual investors, who are more concerned about whether today’s markets are operated fairly and honestly.″

Nonetheless, it said, ″the belief that program trading has diminished the fairness of markets reduces investor confidence.″

Other recommendations in the NYSE report include better systems to detect intermarket trading abuses; a loosening of constraints on corporations’ ability to buy their own stock during volatile markets; the use of a single federal agency to coordinate U.S. stock and future markets and to oversee margin requirements; new products to enable individual investors to protect themselves from daily market swings; and a media campaign to educate the public about program trading.

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